Email notification sign-up

The IMF Survey welcomes comments, suggestions, and brief readers' letters, a selection of which are posted under What readers say. Letters may be edited. Please address Internet correspondence to imfsurvey@imf.org.

Sub-Saharan Africa: The Path to Recovery

October 30, 2017

The broad-based slowdown in sub-Saharan Africa is easing, and growth is expected to pick up to 2.6 percent in 2017 from last year's 1.4 percent, the IMF said in its latest Regional Economic Outlook for sub-Saharan Africa.

Related Links

A recovery in oil production and a good harvest in Nigeria, as well as the
easing of tensions in the Niger Delta accounts for more than half of the
additional growth.

The policy environment has started to improve. Fiscal deficits are
stabilizing and current account deficits are narrowing, partly reflecting a
slight rebound in commodity prices. The global environment has also been
supportive, with strengthening growth momentum in the largest economies,
commodity prices off their troughs, and improved access for sub-Saharan
African economies to international capital markets.

But while a third of sub-Saharan African countries continue to grow at
about 5 percent, income per capita will barely increase in the region.
Moreover, in 12 of the 45 sub-Saharan African countries, home to about 40
percent of the region’s population, or 400 million people, per capita
incomes are expected to decline.

Beyond 2017, growth is expected at about 3½ percent, below the 5 percent
mark achieved in the first half of the decade.

Mounting vulnerabilities

Vulnerabilities have increased in the region, notably, due to rising public
debt, financial sector strains and low external buffers. Public debt is
high not only in oil exporting countries but in many fast-growing economies
as well. At the end of 2016, public debt exceeded 50 percent of GDP in
nearly half of the sub-Saharan African countries. Debt servicing costs are
also becoming a burden, especially in oil-producing countries. In Angola,
Gabon, and Nigeria they absorb more than 60 percent of government revenues.

Driving this increase in debt is a combination of large fiscal deficits, a
slowdown in growth, and in some countries, exchange rate depreciations.
Increasingly, deficits are being financed by domestic banks and ultimately
constraining the availability of credit to the private sector. In many
countries, banks’ liquidity and solvency indicators have deteriorated, and
non-performing loans have increased. Despite some narrowing in current
account deficits, international reserves are now below adequacy levels in
many countries, especially those with fixed exchange rate regimes.

These vulnerabilities are being compounded by political uncertainty
resulting in a lack of clarity about future direction of economic policy,
notably, in some of the region’s largest economies such as Nigeria or South
Africa. This is weighing on consumer and investor confidence.

In this context, addressing fiscal vulnerabilities and unlocking
constraints to growth emerge as the key economic policy priorities for the
region.

Addressing fiscal vulnerabilities

Most sub-Saharan African countries are planning fiscal adjustments to
contain the recent increase in debt. But with the growth momentum weak, it
is important that wherever possible fiscal adjustment is undertaken in a
manner that limits the adverse effect on growth, while preserving fiscal
space for priority spending.

While fiscal consolidation is most pressing in oil-exporting countries,
other countries can use this opportunity to focus on raising revenues and
making room for outlays on health and education, and other spending that
have positive social impact and long-term growth effects.

However, the report says any further postponement of fiscal adjustments will likely increase public debt above sustainable levels given the recent pace of debt accumulation.

Boosting growth and diversification

The need to address infrastructure deficits—even in an environment of
limited fiscal space—through well planned efficient investments is clear,
but it is also critical to make progress on complementary reforms such as
improving governance, including the areas of rule of law and government
effectiveness, in which the region lags behind other developing countries.

Economic diversification has been an important driver of growth for many
low-income countries. And while aggregate sub-Saharan Africa has made
little progress in this regard, with increased concentration in the
oil-based economies in the last few decades, several non-resource based
economies, such as Burkina Faso, Rwanda, and Uganda have made significant
progress in diversification. Country strategies to promote economic
diversification should build on a country’s existing strengths and work
best if they are tailored to tackle specific challenges. The report
suggests sectoral policies will also likely be more successful if supported
by efforts to enhance macroeconomic stability, improve education outcomes,
bolster governance and transparency in regulation, and deepen financial
markets.

Show Comments

Leave Your Comments

Comments are moderated, and will be posted after they have been reviewed.